One of the key barriers to expanded and scaled-up implementation of Forest Landscape Restoration (FLR) is a lack of financing and credit for businesses, including smallholder farmers, to invest in FLR.
Many businesses that have seen their farms, wood lots, landholdings and supply chains impacted by land degradation would like to invest in restoration measures that offer a potentially good return. However, access to capital for restoration can be hard for several reasons. These include unfamiliarity with FLR within the banking sector, uncertainty on how to price risk and compensate investors for the multiple benefits, including public benefits, that come from FLR, and lack of even basic lines of credit for many smallholders.
The TRI project in São Tomé e Príncipe (STP) is working to address these barriers. In collaboration with the Association of Banks (ASB), an umbrella institution representing the five largest private banks that operate in the country, and the public Central Bank of STP, the project is helping advance an ambitious program of work encompassing changes to national policy, along with capacity building and development of tailored financial instruments for the financial sector. The goal is to help spur new flows of public and private finance into restoration and sustainable land management in STP.
In April 2023, two training courses on Green Finance were held under FAO’s TRI project in STP. The activities were foreseen under Cooperation Agreements signed between the FAO STP and the Central Bank of the country, which is also its banking and insurance regulator, as well as the Association of STP Banks, which brings together the four banks operating in the country: BISTP, Afriland, Ecobank and BGFI.
The first of the trainings also had the participation of members of public bodies of STP as speakers: representatives of the Directorate-General of the Environment and Natural Resources, the Directorate of Geology and Mines, the National Institute of Water, the Directorate of Energy, the Directorate of Forests and Biodiversity and the Ministry of Agriculture, which presented the main legislations of the country in their areas of activity, the most critical environmental, social and climate problems and the relevant data they can make available to the financial sector. The training phase was successful, as attendance was high and we managed to involve entities that were not on the project radar at the beginning, such as insurance companies.
In October 2023, TRI Project hosted the second training which was exclusive to the Central Bank of STP. It focused on how banking and insurance regulators worldwide have addressed socio-environmental and climate issues in their regulations, providing guidelines and strategies for evaluating STP’s financial market. Topics such as green, social, sustainable sovereign bonds, microfinance, FinTechs, and developing Green, Social, or Sustainable Taxonomies were explored.
The contents of the training addressed the various stages of socio-environmental and climate risk management, from identifying risks (and which sources of information are needed), their assessment and classification, their monitoring and how this can be considered in the decision process of granting credit or insurance coverage. Governance aspects of the topic in banking and insurance institutions were also addressed, as well as financial products with a positive environmental or social impact and appropriate ways to report on sustainability issues.
The Project is now implementing a second training phase, which is planned to start in July 2024. Under the cooperation agreements, TRI STP will deliver the following:
- Technical support to the Central Bank in analysing the inputs and contributions that will stem from the public consultation process on the management of environmental and socio-environmental risks in the financial sector.
- Deepening the dialogue with the insurance sector of STP on climate and socio-environmental-related risks and opportunities.
- Dialogue with the executive and legislative authorities of STP on the proposed legislation on the sustainable taxonomy of economic activities and projects.
- Dialogues with the executive authority on the need to strengthen environmental inspection measures and greater transparency/accessibility of information about the activities of the public institutions in charge of forest conservation/restoration and related matters, including the Directorate of Forests and Biodiversity, the Directorate of Geology and Mines Directorate, and the Directorate of the Environment.
- Preparation of sectoral questionnaires containing: 1) a list of legal compliance items to be verified; 2) questions regarding key climate and socio-environmental performance indicators to be posed to client companies/potential credit borrowers – which will be adopted as a voluntary initiative by the ABS.
The financial component of the TRI project includes elaborating proposals for banking and insurance regulations in STP on Environmental, Social and Climate, as well as a Code of Conduct for the Banking Association. The goal is to shift the financial sector away from financing activities that cause environmental, social, and climate degradation towards supporting the transition to a green economy and aligning capital flow with the country’s sustainable development needs.
